Discussion:Unemployment eligibility of a client buying a business

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Discussion Forum Index --> Advanced Tax Questions --> Unemployment eligibility of a client buying a business

Discussion Forum Index --> Tax Questions --> Unemployment eligibility of a client buying a business

CPA2005 (talk|edits) said:

1 May 2010
We just moved to CA from NH and still getting to know CA laws and procedures. I have one interesting case which I would like to know your input.

I have a client who is a computer programmer but unemployed and collecting unemployment benefits. His wife is working fulltime. They are thinking of buying a smoothie/icecream shop. My client wants to do some cosmetic changes, add more menu items and hire and train employees to make it self sufficient so that it can be run just by employees. According to him it might take 2-3 months to get all that done. He came to me about the advise regarding the type of corporation and other tax issues.

He was wondering about his unemployment benefits and adding his name as an owner of the corporation. Since I'm new to CA I wasn't able to satisfactorily answer those question. I'd appreciate if you can answer below questions considering CA state:

1. If my client temporarily help in setting up business, can he still receive UI benefits? He said he would keep on looking for work and will accept a fulltime job if offered. I thought it would be illegal since he would be working but then its temporary and not his field of work (computer professional) so I'm not really sure.

2. If he adds his name as one of the owner of s corp would his unemployment eligibility affected? He suggested setting up s corp only in his wife's name. I'm not sure if that works as CA is a community property state. May be you can shed more light on this?

3. I think s corp is the way to go for this shop since they'll be hiring employees. I have also setup LLCs with s corp tax treatment which is basically less hassle. Let me know what do you suggest in this case.

CathysTaxes (talk|edits) said:

1 May 2010
I do believe if he sets it up as a SCorp, he will have to pay himself a salary because as an officer, he is now an employee. That would impact unemployment. I don't know about CA, but in IL, my clients (husband and wife) were officers of their SCorp but only he received a salary because she really didn't do anything in the business.

I'd be wary about having employees run an ice cream shop without the bosses around. You'd have to make sure you are paying that person enough money. Husband and I used to own an ice cream shop and many times when we were out, employees started giving away to their friends and family.

If the husband and wife set up as a two member LLC, then, IMO, you won't need the formal overhead of the SCorp. If they can set up as a single member LLC (if that's allowed in CA, I don't know), then they can do payroll. If the single member LLC is in the wife's name, then I don't think his unemployment would be an issue.

Jeff-Ohio (talk|edits) said:

1 May 2010
Absolutely. There are no profits or even income of any sort thus no need to pay a salary....he's merely setting up a business.

Larry0434 (talk|edits) said:

1 May 2010
1. No. To receive unemployment benefits, he is required to declare that he is actively looking for employment on a full time basis. Any work to establish the S Corporation he did would be as an officer, as a result, he would technically be required to pay himself. In addition, he is not available for work during the period he is working in setting up a S Corporation.

2. He could be an owner of a S Corporation and not impact his unemployment. Setting up the business in his wife's name would make it her property, he would have a claim on its proceeds during a divorce. 3. If you had to ask these questions, you should not be setting up a business. I consider setting up a business or organizing a business as a procedure requiring legal representation.

Actionbsns (talk|edits) said:

1 May 2010
First off, each state is different and I think your response needs to be from someone in California. I agree with Jeff, there's no requirement to immediately take a salary, especially since, if your client is re-furbishing the place, it is most likely not open for business and there is no income. Your client needs to continue looking for work as required by UI rules and it sounds as though he plans to do so. To answer your questions as they apply to California, call the Department of Labor and pose them hypothetically, or check it out on their website.

When I lived in California, I had a client who owned a Baskin Robbins franchise that was mostly run by employees. He scheduled time that he was in the store, which cut down on "give aways", but didn't eliminate them. You're hiring kids and kids like to share, so they don't see anything wrong with trading a quart of ice cream for a pizza. My client was able to rely on a manager for the most part, but there were always the times that he just needed to be there, and generally they were the most inconvenient of times, there were calls of "what do I do when XXXXX happens?" "How do I clean up the spilled ice cream?", really silly and non sensible stuff. I'm not sure he had much fun running the operation and he was always at odds with the BR people.

CrowJD (talk|edits) said:

1 May 2010
If I had family or friends working at an ice cream shop, yes I would expect some free ice cream, you bet.

What's the purpose of friends if not for graft and corruption? Wall Street ethics is my ethics now, if it's good for the rich, it's good for the rest of us too.

Unfortunately, the Good Ship Lollipop has sunk. We've run our ship up on the rocks and we'll have to live with it.

As far as his S Corp goes, get him set up with one of those camera outfits where he can sit at home and watch what's going on at the shop from his computer. Of course, some smart alleck might put ice cream on his fingertip and foul his lens, but at least he could prove to the government that he was not working but sitting at home playing with his computer instead.

MWPXYZ (talk|edits) said:

3 May 2010
Why would anyone move to CA, especially from NH?

CrowJD (talk|edits) said:

3 May 2010
Got involved with the farmer's daughter and was facing a shotgun wedding? That's one of the few things that will drive a man clear to the other coast.

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